McDonald's steps up its game

Last year, the craze was cold brew. Both Dunkin' and Starbucks
still sell the incredibly popular, less-acidic iced coffee, which
takes at least 12 hours to brew, while McDonald's never joined
that particular party.

Recently, however, McDonald's has put a new emphasis on
its McCafe brand. This includes revamping its
beverage lineup to include coffee house staples such as
cappuccino, caramel macchiato, and Americano. All of these can be
served hot or cold.

On the cold front, the burger chain has partnered
with Coca-Cola to bring a line of ready-to-drink McCafe
Frappe beverages to grocery stores. They will be competing on
store shelves with Dunkin's new ready-to-drink line, and
Starbucks' expansive bottled offering that includes cold brew,
iced coffee, energy drinks, and Frappuccinos.

McDonald's is also pushing its rivals on price -- perhaps because
it knows it's not the first choice for coffee aficionados. The
chain has been offering any McCafe coffee hot or iced for $2 for
a small.

Several
people hustle past a new McDonald's McCafe coffee shop May 1,
2001 in Chicago, the first McCafe located in the United
States.Getty
Images

Iced innovation

While McDonald's changes are really about offering a traditional
coffee house lineup of drinks, Starbucks and Dunkin' both have
pushed their research and development teams to find something
new. For Dunkin' that has involved a steady stream of seasonal
flavor choices as well as making the tough decision to drop its
Coffee Coolatta in favor of the new Frozen Dunkin' Coffee.

The new frozen coffee, a direct attempt to compete with
Starbucks' Frappuccino frozen line, is "made with a special
extract featuring 100% Arabica coffee to bring forward the
signature flavor of the brand's premium coffee, blended with ice
and dairy," according to a press release. Some would say it's not
as good as Frappuccino, but it's better than most frozen coffee
products, and a big improvement over Coolatta.

Starbucks also regularly innovates in the cold space, trying all
sorts of limited-edition Frappuccino flavors as well as
othericed beverages. For the fall, the chain has
something new entirely -- Cold-Pressed Espresso, "a new
patent-pending cold extraction process that will serve as the
foundation for a new menu of sparkling beverages," the company
said in a press release.

At first this new line of cold-pressed drinks, which take about
an hour to make, will only be offered at the chain's Seattle
Roastery. That could change as a number of products have been
introduced at the Roastery and then rolled out either selectively
or system wide.

Kate
Taylor

Cold is big

While none of the three chains regularly report a breakdown of
cold drink sales, Starbucks offered some data during its 2016
investor conference. The company said "it expects to quadruple
the Cold Brew business by 2021 and its overall cold beverage mix
to move from over 35% in 2013 to nearly 50% by 2021." In
addition, the chain cited research noting that "iced coffee
consumption has grown by 75% in the past decade and cold brew
sales grew 338.9% between 2010 and 2015."

Iced coffee offers opportunities for all three companies to grow
their business. Starbucks has shown with Frappuccino and cold
brew that iced and frozen drinks can lure in casual coffee fans
who want special flavors. That's a model Dunkin' Donuts has long
followed and one where it continues to innovate.

McDonald's isn't innovating as much as it's copying what works
elsewhere. That probably won't woo any dedicated fans of its
rivals, but it could increase how much the chain's existing
customer base spends.

Starbucks is clearly the leader here, but all three chains
clearly have an opportunity to grow their business in the iced
coffee space.